Do you think things have changed ? Is there a danger here that we may be in that bag of marbles dicussed elsewhere on the forum where we have not used enough histiroc data - i.e. is TF about to really struggle as more markets are banned from shorting, governmnets intervene more , markets reverse weeks of trends in 15 minutes and HFT is playing its part ??

My 2 cents worth is that it is far too early to tell but there is a small amber light that says reducing capital 10-30% for the next while at least until systems make a new equity high maybe advisable ? I ve been doing this for 23 years and Im definately seeing a few things that concern me although I also feel human nature will never change

For my two cents, I believe that markets are changing and let me explain why I believe it is so:

Historically, markets have existed to provide price discovery and allocate scarce resources. At the current juncture, markets are being prevented from performing their historic purposes because governments (to a far greater degree than historically) donâ€™t like the prices that are being discovered as the underlying trends attempt to assert themselves. Thus, we have a constant tension between normal, trending price discovery and the counter balance of central planning currency manipulation.

While I believe that the above dynamic will make trend following difficult, there is no knowing how long the current dynamic can persist. Can governments prevent/suppress the assertion of underlying price trends forever? I doubt it, but systems have existed in history for decades that depended upon economic principles other than free market price discovery.

So, in my mind, there is a real possibility that the current world-central-planning-cartel can do some significant damage to the theories that have driven the discovery of free trending markets.

akhoury wrote:For my two cents, I believe that markets are changing and let me explain why I believe it is so:

Historically, markets have existed to provide price discovery and allocate scarce resources. At the current juncture, markets are being prevented from performing their historic purposes because governments (to a far greater degree than historically) donâ€™t like the prices that are being discovered as the underlying trends attempt to assert themselves. Thus, we have a constant tension between normal, trending price discovery and the counter balance of central planning currency manipulation.

On the other hand, many futures traders agree that historically the best-trending sectors have been Currencies and Interest Rates, both of which have more to do with government monopoly and central planning than with free markets. Please note that if libertarians had their way (which I think they should), and we had limited governments everywhere, a global gold standard, and a no-debt economy, then futures traders could no longer trade currencies, interest rates or gold. Whether this would be counter-balanced by smoother trends in other markets is an open question.

Do you think that the degree of debt monetization and central bank intervention has reached a level that is impacting the trends that underlie the fundamental trends from asserting themselves even within the markets that you refer to. One of my thoughts is that much of the data that we point to has been collected since the gold standard died during the Nixon administration. Prior to that we did not have a total fiat global system; there were some anchors of stability. It is this dynamic that I think may be having an impactâ€¦. I would be interested in your thoughtsâ€¦best

akhoury wrote:One of my thoughts is that much of the data that we point to has been collected since the gold standard died during the Nixon administration.

That is exactly my point. That all great trend-followers (Dunn, Turtles, Eckhardt, Winton, AHL, John Henry, David Druz, etc., etc.) have produced their track records under a fiat money regime. And historically paper money systems have always collapsed. The current one will collapse, too, no question about it. The Western economies have long passed the point of no return. Money printing machines are working faster and faster. Like many Austrian Economists, I believe that both Europe and the US are speeding into the abyss of a hyperinflation disaster. The interesting question is what will come next. In my mind, there are two possibilities: either we will reintroduce the system that once made America great, i.e. a laissez-faire capitalism or, which I fear, a kind of Orwellian superstate with heavily-regulated economy, without free trade, and without evil speculation a.k.a. futures markets, of course. Either way, the great fiat-money trend-following track records may soon become increasingly irrelevant. That is not to say that trend followers did not flourish before 1971 but, sadly, we only have anecdotal evidence of their performance.

Ultimately 'cash' markets should drive futures prices --- not the other way around.
Cash markets existed before futures markets.
When the relationship of contracts written to the volume of 'actuals' is stretched [ie: silver] or severed entirely [fiat currencies] the bounds are parabolically biased. Keep printing, keep contracting, to hell with any relevance to actual production.
a grumpy old hedger
(disclaimer: currently long a falling market )

Do you think things have changed ? Is there a danger here that we may be in that bag of marbles dicussed elsewhere on the forum where we have not used enough histiroc data - i.e. is TF about to really struggle as more markets are banned from shorting, governmnets intervene more , markets reverse weeks of trends in 15 minutes and HFT is playing its part ??

I would have imagined that this would then exacerbate trends...."when".... is the problem. Maybe the idea of long term is not long term enough?

I dont think searching for more answers in more data will necessarily help if the trends dont actually exist, or there are other issues in capturing them..... So for me the question then becomes one that others have touched on.....have markets and market structure changed?
If so then only by continual optimized testing of the more recent data really makes sense. (food for thought)

On the other point about governments....if I remember correctly one of the big aims of government and regulation of markets was to reduce bubbles and crashes. Maybe over the past 20 years they have done that (yes governments might actually work ) and hence less trends, but more volatility....or maybe its faster trends with more volatility or maybe its shorter trends with less volatility but faster reaction times, or maybe its more correlated markets with less diverging and diversified markets.....

Edwin Lefevre wrote:I can't sleep. I am carrying so much cotton that I can't sleep thinking about it. It is wearing me out. What can I do?

"Sell down to the sleeping point," answered the friend.

Perhaps this advice can be applied to the current situation. If you worry that the markets have changed in a way that severely damages your trading method's profitability, perhaps the thing to do is reduce position size. Reduce it to the point that lets you sleep again. For some people, the sleeping point might be: to get out completely, i.e., position size = zero.

Edwin Lefevre wrote:I can't sleep. I am carrying so much cotton that I can't sleep thinking about it. It is wearing me out. What can I do?

"Sell down to the sleeping point," answered the friend.

Perhaps this advice can be applied to the current situation. If you worry that the markets have changed in a way that severely damages your trading method's profitability, perhaps the thing to do is reduce position size. Reduce it to the point that lets you sleep again. For some people, the sleeping point might be: to get out completely, i.e., position size = zero.

Absolutely 100% agree. I have made that mistake so many times. I really must try harder.

Can't this effect be studied by having an XAU/USD forex file and setting the Blox base currency to XAU?

Here is a basic LTTF system run over the Blox standard US futures. First chart is USD base currency. Second chart is XAU base currency. I didnt think they would be THAT similar. Maybe this is not the proper solution to this question?

Well the dollar has tanked during that time and Gold has gone up about 300%. How could the account value be less with Gold as the base asset? Is there any interest being earned on the account during the timeframe of this test?

sluggo wrote:
Perhaps this advice can be applied to the current situation. If you worry that the markets have changed in a way that severely damages your trading method's profitability, perhaps the thing to do is reduce position size. Reduce it to the point that lets you sleep again. For some people, the sleeping point might be: to get out completely, i.e., position size = zero.

I have done just this - cut my position sizes to about 25% of their former size, and mostly use options instead of futures to avoid tail risk. I have also greatly tightened up my rules for what constitutes excessive correlation. My goal was simple - stop losing money. I am about break-even over the past two months, so on that score I can claim a very modest victory. Yes, I may be caught under leveredged when the markets right themselves (assuming they do), but at this point, the trade-off is acceptable.

Iâ€™m not so sure what we are complaining about or are so worried about. Isnâ€™t this the thing we trend-followers get â€˜paidâ€™ for? To sit through times like these? I would assume these sorts of times are one of the scenarios Ed Seykota was referring to in the Whipsaw Song; â€˜just file the news.â€™ http://www.youtube.com/watch?v=LiE1VgWdcQM. My partner and I have been trading a very simple Donchian-type system since 2005 and yes, this is no fun right now. Downright frustrating, aggravating, disheartening, and lonely. As Mark Cook once told me, these are periods where you are â€˜donating.â€™ It sucks. Itâ€™s hard. Itâ€™s extremely difficult to not think itâ€™s different this time and it will never improve. And who knows. It may be. But these are the times we just have to keep â€˜trading through.â€™ Punch through this crap and on to the other side where the sun is shining and birds are singing and there are more sleepless nights because you cannot believe how much money you are making. What is really kind of unnerving is we have had some phenomenal trends recently yet there is a lot of griping going on and a lot of fear that trend-following is not working any longer. Using Blox simulations with our system I look back to May 2009 through October 2010. Up 192%. Then look at 12/2008 through 5/2010. Sucked bad. Chop Chop. Look at 11/2005 through early 9/2007, Chop Suey again with a huge run up in it only to give it all back. But then if you just stuck it out through 4/2008 you would have experienced a 170%+ move. Testing out these scenarios is usually a wonderful exercise and is an excellent way to build confidence in ones system. However sitting through those periods day after day after day after day is extremely difficult. Just when you think itâ€™s over they whack you again. And again. And then you get loaded up on one side of the boat or the other and they take all of that away. Again. It is insanity but its part of the business. At least I know thatâ€™s what I signed up for.

So as I see it, and maybe I have blinders on, this is all part of the game. As a matter of fact I think you need to have blinders on and you need to delude yourself to get through times like this. Trends are a part of nature and nothing the demoncrats, the republicrats, or the PIGS do will ever change that in my opinion. As a matter of fact, I think the net effect of all this gooberment meddling is compressing the inevitable spring that will be released once the pressure is great enough and it can no longer hold. Hopefully we can stay solvent until then.